Use a trade representative as your only sales distributor in the target countryFail in foreign trade 8
Mr. Schmidt makes wonderful furniture out of rattan and woven materials. His company relies on true handcrafting and prides itself on being exclusively “made in Germany.” This quality standard is sacred to him – and above all, it justifies his fairly high prices; compared to the competition mainly from Indonesia, Mr. Schmidt’s products are more than twice as expensive.
Last year, Mr. Schmidt went to the furniture trade show in Paris and exhibited his valuable products there. He knows there is a large market for his products in France, and the South of France in par- ticular promises to be a fantastic market.
The trade fair began, and Mr. Schmidt’s optimism was not in fact misplaced. Straight away, there were many interested retailers at his stand on the first day, admiring the great quality, professionally noting the excellent craftsmanship and showing a strong interest in buying. The interested parties also agreed that the prices were in the upper range, but that there was a strong enough target group in the target region of the southern coast.
Just as Mr. Schmidt’s mood was slowly starting to darken,
However, Mr. Schmidt now faced a dilemma: he had a large number of potential customers who wanted to purchase relatively small quantities. There was a furniture store in Cannes that wanted to take a couple of armchairs – preferably on commission – and another one in St. Tropez that was interested in two sofas.
M. Dujardin appeared at the exhibition stand and declared that he had the ultimate concept for him to ensure business success in France. M. Dujardin said that he was a successful importer of high- quality garden furniture, and that Schmidt’s woven furniture would round out his product portfolio perfectly.
Mr. Schmidt’s eyes lit up, because he had been secretly hoping to find someone in France who could do all of the work for him there. In Mr. Schmidt’s view, the importer was like the goose that laid the golden egg. Just one customer for the whole market, only one in- voice sent to one address, someone who could do all the marketing and take care of communications with the end customers. A dream.
After dining together in Paris, the two came to an agreement. A contract was signed, agreeing among other things that M. Dujardin would receive sole distribution rights in France and could calculate the profit margins himself according to the market. In addition, Dujardin also managed to convince Mr. Schmidt to send him furniture to set up a showroom near Nice, and to pay for the entire thing. This was a trifle to Mr. Schmidt, because after all, the conversations with Dujardin had convinced him of the incredible potential in the area and he was sure the investment would pay off shortly.
Everything was set in motion. Schmidt delivered the pieces for the showroom, rented a fantastic (and expensive) storefront for and with the help of Dujardin, and of course he provided translated versions of all his brochures. They were ready to go, and his expectations were even higher than at the start. Above all, however, he was convinced that in discovering Dujardin, he had found the ultimate solution to accessing the French market.
Weeks went by but not much was happening with the French business. Occasionally they sold a small side table, or a couple of chairs or a bench. Mr. Schmidt’s initial slight nervousness was quickly put to rest; after all, the peak season was still coming up, and the sales would materialize then, he was told.
June came, then July and August but sales were by no means growing as quickly and steadily as they needed to in order to make up for the significant initial investments. Every month, Mr. Schmidt wired the rent for the shop, pumped more money into advertising, and watched as the summer months slowly slipped away without any significant improvement in his sales to France. Finally, the ca- lendar showed October 15, and the originally planned budget had been completely used up.
Mr. Schmidt quickly decided to pull the emergency brake and close the shop. In order to save at least the expensive floor models, he rented a truck and drove to Nice to load everything up. His arrival surprised Mr. Dujardin, who happened to be in the shop, and Mr. Schmidt could not believe his eyes. There was the warehouse, full of woven furniture that looked amazingly like the ones from the Schmidt atelier, but by no means originals. It was clear that M. Dujardin had been using the floor samples as product templates, having them replicated in Indonesia, and selling them to interested customers for his own profit…
What we can learn from this:
At first, the importer seemed like a simple, reliable way to access a foreign market. In particular, the ability to write just one invoice for one inter- national customer, and having someone to take care of everything, is understandably tempting.
But something that at first glance seems to solve all your problems at once often turns out to be a terrible trap. When we look at the situation without the rose-colored glasses of hopeless optimism and faith in human honesty, the problem quickly becomes clear. Only having one customer also means tying all of the risk to a single person. If the importer does not fulfil his promises, the whole deal is a disaster. Even if it works out at the beginning, the risk is always there – because the entire know-how about the market and the customers lies with the importer. Just imagine what would happen if the importer could no longer do his job, for whatever reason. In cases like that, companies have been known to lose entire markets overnight.